What If China Has a Fukushima?

China
has never suffered a Three Mile Island-like nuclear power plant
accident, much less a Chernobyl meltdown or a Fukushima disaster.

But
now that the government under Premier Li Keqiang has put the country on
a fast-track for nuclear power development, with dozens of new reactors
scheduled to launch by 2020, the insurance industry is focusing
attention on the difficult question “what if?”

China’s
insurers have been taking a cue from the National People’s Congress,
the nation’s top legislature. A special panel under the NPC’s
Environmental and Resources Protection Committee was recently ordered to
draft a nuclear safety law, the nation’s first, with a built-in
framework for power plant accident compensation.

NPC Standing Committee Vice Chairman Shen Yueyue said in February the law has reached the legislative agenda.

Zuo
Huiqiang, general manager of the Chinese Nuclear Insurance Pool,
expects the law to be enacted within two years. The 15-year-old CNIP is a
collaborative effort of 25 Chinese insurance companies including China
Reinsurance Group, Peoples Insurance Company of China and Ping An
Insurance Co.

“During the early period for
nuclear power development,” Zuo said, “coming up with plans for what to
do if something goes wrong is the responsible thing to do.”

Certainly,
there’s plenty of work to be done in the insurance arena to make sure
China’s has a compensation response plan in place before an accident
occurs. For example, liability caps for China’s nuclear accident
insurance policies are now the lowest in the world.

Under
a 2007 State Council directive spelling out nuclear accident
compensation plans, any of China’s 19 nuclear power plant operators such
as China Guangdong Nuclear Power Holding Co.(CGN), operator of the Daya
Bay Nuclear complex in the southern province of Guangdong, and China
National Nuclear Corp. (CNNC), which runs the Qinshan nuclear power
plant in the eastern province of Zhejiang, must have insurance that
covers financial losses and injuries up to 300 million yuan. If a
legitimate compensation claim exceeds that maximum liability, the
central government will provide up to 800 million yuan extra to cover
the costs.

“Liabilities of 300 million yuan
or less are to be assumed by nuclear operators, and the government is
responsible for the next 800 million,” Zuo said. “Even though there’s no
clear wording for anything over 1.1 billion yuan, the public nature of
nuclear accidents almost definitely means that the government will bear
the burden.”

Thus, the 2007 directive in
effect is a form of government policy support for the nation’s nuclear
plant operators. But because of the nation’s liability caps, the level
of support is relatively modest compared to what’s in place in other
countries that use the atom to generate electricity.

China’s
limited liability insurance system stands in sharp contrast to the
unlimited liability coverage that protects the public in Germany,
Switzerland, Japan, Belgium, Russia and the United States.

All
other countries with nuclear power around the world, including Britain
and Spain, have a limited liability system like China’s.

The
Chinese insurance pool’s direct underwriting capacity is a respectable
US$ 898 million, behind only Japan, Britain and Switzerland. In terms of
compensation caps, Belgium has the highest at US$ 1.5 billion, followed
by Japan and Switzerland at US$ 1.2 billion each.

In China, a lot more money would be needed to cover damage in the event of a major catastrophe.

“If there’s ever a problem, this liability limit will certainly be too low,” said Liu Yubo, CNIP’s deputy general manager....

Thomas Piketty is a rock-star economist — can he re-write the American dream?

When the movie
is made about the fall of Western capitalism, Thomas Piketty will be
played by Colin Firth. Piketty, whom the Financial Times called a
“rock-star economist”, isn’t a household name — but he should be, and he
has a better shot than any other economist. He is the author and
researcher behind a 700-page economic manifesto, titled Capital in the
21st Century, that details the path of income inequality over several
hundred years.

This sublime nerdishness is,
somehow, a huge hit. It is now No 1 on Amazon’s bestseller list and sold
out in many bookstores. When Piketty spoke on a panel this month at New
York’s CUNY with three other economists — two of them Nobel-prize
winners, Joseph Stiglitz and Paul Krugman — the Frenchman was the
headliner. The event was so packed that the organizers had to create
three overflow rooms. Weeks after the release of Capital, intellectuals
are still salivating, even calling Piketty the new de Tocqueville.

This
is quite a burst of stardom for a man who, despite his understated
Gallic charm, is very much the bearer of bad news. Piketty’s sublimely
nerdy book, packed with graphs, statistics and history, is all evidence
for an immensely depressing theory: that the meritocracy of capitalism
is a big, fat lie.

Piketty’s research, which
is immaculate, reaches back hundreds of years to establish a simple
thesis: the American dream — and more broadly, the egalitarian promise
of Western-style capitalism — does not, and maybe cannot, deliver on its
promises. That, he writes, is because economic growth will always be
smaller than the profits from any money that is invested. Economic
growth is what we all benefit from, but profits from invested money
accrue only to the rich.

The consequences of
this are clear: those who have family fortunes are the winners, and
everyone else doesn’t have much of a shot of being wealthy unless they
marry into or inherit money. It’s Jane Austen all over again, and we’ve
just fooled ourselves that the complicated financial system has changed a
thing.

This is a deep point. Many American
households, if they are lucky, will grow their wealth at the same rate
as the economy. But, because the wealthy are growing their fortunes at a
much faster rate, no one else can ever catch up.

Let’s repeat that: no one else can ever catch up.

This
is where Piketty adds more nuance: it’s not just inequality of wealth
and income that we’re struggling with, but inequality of opportunity.
That’s of far more concern. In essence, he is saying, we’re lying to
ourselves if we believe that hard work will lead to wealth. Mainly,
wealth reliably leads to wealth. Everything else is chancy. The middle
class is playing the economic lottery to improve their lot in life,
while the wealthy have a sure thing.

This is clearly fraught — and to some, like the New York Times columnist
David Brooks, it sounds like class war (he calls it “angry
progressivism”). Piketty’s purpose is not to point out that inequality
exists, or that it’s growing — both of which have been established ad
nauseum by everyone from President Obama to Pope Francis. Piketty’s
point is that we are actually doomed to inequality.

It’s
hard to argue with this, really — Piketty’s research is too good, too
sprawling, too complete. It’s as good as fact. It codifies what many
suspected. Piketty’s point is accepted wisdom in most of Europe, where,
in France and Germany, the morality of capitalism is regularly
questioned.

But there remains a lot of
controversy anyway. Why? Because Piketty wants to change the lever on
income inequality by putting a tax on wealth — not on income, which is
the stuff of the middle class, but on fortunes themselves, on the money
that is invested and reinvested and compounded and grown....

Tier 1 Chinese cities begin property discounting

“Two
weeks ago the price fell 200,000 yuan,” “6 hours ago the price fell
100,000 yuan,” …… Yesterday, the sites of real estate companies show
homes in the east, south and west Third Ring large area, about thirty
percent of listings are marked with The green arrow indicates the
listings with price cuts have almost quadrupled since the period before
Spring Festival. Such a situation from two weeks since the beginning of
April, the city is currently at this largest second-hand housing sales
real estate agent are starting to tell homeowners who ask for high
listing prices, “no.” Every home exceeding the average price for the
area is being persuaded one by one to cut their asking price, otherwise
they will be removed from the website, “off the shelf.”

Reporter
survey found that many hot spots in the district, real estate agencies
have taken as much as 40% of the properties off the market, resulting in
an eyeful of lower prices online. Meanwhile, statistics from “Love My
Home” (and other agencies show that in April, Beijing region through its
stores traded second-hand housing transactions , the average
transaction price of 31,265 yuan / square meter, with a full month of
March compared to the average trading price fall about 4%.

“My
agent told me to drop the price by 100,000 yuan because no one has
looked at it over a week.” Put yourself in public last week, Ms. Liu
lowered her second-ring road second-hand asking price, still no one came
to see it. From the beginning of the month, she has cut her 80 square
meters two-bedroom apartment by nearly 20,000 yuan.

Liu
is not only one, the reporter in the chain of home listings online
Yuanjianmingyuan district saw, more than 90 sets listed online listings,
nearly 30 percent of listings are marked with green price sign —
ranging from a few (a few 10,000s), to as many as 200 to 300,000 yuan.
Statistics show that all of these homeowners lowered the price in the
last two weeks.

“Through our efforts, the
district where many homeowners have recently lowered the listing price,
and are basically starting with cuts of 50,000 yuan. Doing so mainly to
prevent the new sellers from comparing to the online listings high
offer, thereby pushing overall pricess. Realtor Wu said for new
listings, the owners will make reference to similar sized residential
listings with price quotes given. For example, Yuanxianmingyuan less
than 52,000 yuan average residential price, but individual owners if
quoted 55,000 yuan, the new majority owners will refer to this listing
higher offer, and then increase the average housing price.

A
South Third Ring Road, East Third Ring Road real estate broker, said
that after consultation with the homeowner, they reduced second-hand
housing significantly more in April, accounting for almost 30% of the
total valid listings. In contrast, those who insist on asking high
prices have become invalid listings.

Reporter
survey found that, after half a month of busy introducing broker, the
city used some hot area of online listings leaving only 50-60% of the
peak listings. In other words, the remaining approximately 40% for
whatever reason haven’t adjusted their price are temporarily off the
market. Yesterday agents at several real estate brokers said persuading
the old and new homeowners to lower their price has become their main
job, in the task of “discouraging” listings, stands at about 50% of the
online total listings.

“For example
Xishanfenglin 1-4 there was about 90 listings, after removing the high
prices homes, there are about 40 to 50 listings now.” Xishanfenglin
district real estate agent Chen said. Similar Xishanfenglin phenomenon
of mass removed expensive listings in the rings are very common.
However, although online shows decreased listings, but in fact, the
proportion of listings ready to deal has greatly improved. “Late last
year, if a customer came to look at homes, we have the key for several,
if a customer comes now, if he wants to see 10 homes a day, no problem.”
He said.

After some adjustments, the
agency’s online listings actually increased rather than decrease, but
also with brokers “hard to stay” exclusive listings are not unrelated.

“Call
me last weekend intermediary brokers have seven or eight people, half
of which advised me to check with the stores ‘exclusive quick sales’
contract.” Pang said the public, in accordance with the broker’s
recommendation, if the homeowner with the agency signed an “exclusive
quick sale” contract, which is equivalent to bind listings from this
agency does not allow homeowners and then selling through other
intermediaries, and intermediaries mouth so-called “quick sale” is its
commitment within three months the house is sold, the seller will
otherwise receive compensation of 1,000 yuan. According to sellers’
reports, signed with the agency if the “exclusive quick sale” contract,
which would not have strict restrictions on listing price, the
equivalent of all the parties agreed to make some concessions....

GPIF Shakes Up Committee With Three Abe Panel Members

Japan’s
government pension fund overhauled its investment committee, adding
three members of a state panel that urged it to cut bonds, as the
balance of power shifts at the world’s biggest manager of retirement
savings.

Yasuhiro Yonezawa, who sat on the
group handpicked by Prime Minister Shinzo Abe that recommended a
strategy and governance revamp at Japan’s 128.6 trillion yen ($1.25
trillion) Government Pension Investment Fund, will join the committee,
the health ministry said. Yonezawa, 63, is expected to be named head,
according to media reports. Sadayuki Horie and Isao Sugaya were also
appointed, with only two of 10 previous members remaining and the
committee’s size reduced to eight.

“Several
stages are needed to change GPIF’s governance structure, and the first
is to change its investment committee members,” Takatoshi Ito, who
headed the advisory group, said in an interview on April 17. “Our panel
advised that the investment committee should hold more power, as the
fund currently has no board of directors.”

The
appointments suggest the ministry is heeding the directives of Ito’s
group amid mounting pressure on GPIF to cut reliance on domestic bonds
as pension payouts
swell and Abe and the Bank of Japan seeks to spur price gains. GPIF has
already implemented several of the panel’s recommendations, including
readying to diversify into areas such as infrastructure, adopting
benchmarks like the JPX-Nikkei Index 400 for domestic stocks and
preparing to hire in-house investment experts at market rates.

The
health ministry appoints the members of the committee, which monitors
the implementation of GPIF’s policies and advises the president.

Yonezawa,
a professor at Waseda University’s Graduate School of Finance, is also
on a 21-member advisory group helping the ministry of health conduct a
five-yearly review of public pensions due this year, which may lead to a
change in asset allocations. He sits on a 10-member ministry committee
that set GPIF’s new return target of 1.7 percent plus the rate of wage
growth last month and said the fund no longer needs a domestic-bond
focus.

“I’m convinced that he will work in
line with our panel’s report to enhance GPIF’s investment and strengthen
its risk management and governance,” said Masaaki Kanno, chief Japan
economist at JPMorgan Chase & Co., who was also a member of Ito’s
group.

Yonezawa is expected be named
chairman of the investment committee, according to reports by the Nikkei
newspaper and Kyodo News on April 19.

Horie
is a senior researcher at Nomura Research Institute Ltd. and previously
worked for Nomura Asset Management Co. Sugaya, 61, is managing director
at the Japan Trade Union Confederation, known as Rengo.

Two
women have been appointed: Junko Shimizu, a professor of international
finance at Gakushuin University in Tokyo, and Yoko Takeda, chief
economist at Mitsubishi Research Institute Inc. Also joining the group
is Setsuya Sato, a professor in the English communications department at
Toyo University who also served as a financial adviser to the World
Bank and public policy director at UBS AG.

The
remaining two are Hiromichi Oono, a board member at Ajinomoto Co. and
Kimikazu Noumi, president and chief executive officer at Innovation
Network Corporation of Japan.

Ito’s panel
recommended in November that legislation be enacted to give GPIF
independence from the health ministry, which has ultimate responsibility
for the fund. As a transitional measure until the law is passed,
multiple members of the investment committee should be hired full-time,
according to the panel. The health ministry’s statement made no mention
of full-time officials.

A system where
GPIF’s head has sole decision-making power and responsibility “may fail
to function adequately,” Ito’s panel said in its report in November.
Takahiro Mitani, the fund’s president, currently has sole authority.

GPIF
and the health ministry should “quickly and steadily” enact necessary
policies following the recommendations by Ito’s panel, according to a
cabinet decision on Dec. 24.

“The cabinet is the driver of change” for GPIF, Ito told Bloomberg News. “The cabinet is going to keep pushing.”...

The
Leonardo Express rumbles from Rome’s airport right to the city center.
After 32 minutes, it arrives at its final destination, Termini, the
city’s central station. An ad in a pedestrian tunnel at the station
reads, “Roma Termini — a Place to Live.” Some have taken the message
quite literally.

It’s 11:10 p.m. Stranded
people from around the world are wrapped up in their sleeping bags as
they lay in front of the exit on the north side of the station. On some
nights, up to a hundred homeless huddle together like freezing people in
front of a fire. Many of those who sleep here are African refugees.

During
the daytime, Roma from Romania represent the majority in and around the
station. Left largely unchecked by the local authorities, they
aggresively try to squeeze money out of foreign tourists.

A
comment by one British tourist recently got posted on the Facebook page
of Ignazio Marino, who became the city’s mayor in June. The tourist
said she had never before experienced “a more wretched hive of scum and
villainy” than when she arrived in Rome by train. For safety reasons,
she wrote, it is advisable to “spend as little time as possible” at
Termini.

Marino takes criticism seriously,
but also in a sporting manner. As he sits at his desk in Rome’s Palace
of the Senate on Capitoline Hill, a building once remodeled by
Michelangelo, he exudes the aura of a man at peace with himself. Two
months ago, he was still cursing his opponents who, he says, wanted to
let the Eternal City go up in flames just as Emperor Nero did. At the
time, Marino made clear that he wasn’t prepared to play the role of the
“capital city’s liquidator-in-chief.”

What
had happened? Rome was on the verge of bankruptcy and the mayor said the
only way to possibly rescue the city would be for the national
government to jump in with emergency aid to the tune of €600 million
($829 million) within 24 hours. Marino got his wish and the city didn’t
go up in flames. Standing beneath a photo that shows him in an intimate
embrace with Pope Francis, the mayor now says he wants to move forward.
After all, he adds, “spotlights from around the world will be shining on
Rome” on April 27, and 2 billion people will be watching on their
televisions.

On Sunday, the two most popular
popes of the 20th century — John XXIII and John Paul II — are to be
canonized on St. Peter’s Square by Pope Francis. Catholic pilgrims from
around the world plan to attend, and hotels in the capital city are almost entirely booked out.

For
at a short time at least, Romans will be “able to dream of living in a
truly European city,” because the metro, for once, will finally operate
at night to help accommodate the expected 3 million visitors, the local
citizen’s advocacy group Residents of the Historical Center notes
caustically.

The old Roman establishment
feel they are being ignored by politicians and that they have been
forced to look on powerlessly as one fast food restaurant or bed and
breakfast after the other has replaced the last remaining artisan shops
in the heart of the city.

More than 12
million tourists visited Rome last year, and this despite the fact that
the city once known as Caput mundi, or the capital of the ancient world,
has since lost much of its splendor. That, at least, is what many
residents say.

Novelist Mauro Evangelisti
warns visitors, like the pilgrims who are about to descend upon his
city, that they must brace themselves for “an old airport, crooked cab
drivers, swindlers, pickpockets” and streets full of potholes like in
Havana. In an open letter published prior to the last municipal
election, 21 Roman intellectuals lamented what they saw as signs of the
city’s downfall and “cultural gloom”.

Meanwhile, Carlo Verdone, one of the leading actors in the movie
that took this year’s honor for Best Foreign Picture at the Oscars,
“The Great Beauty,” even goes so far as to describe his city as a true
to scale likeness of a “totally failed country.”

Matteo
Renzi, Italy’s new prime minister, is now calling for radical reforms.
Since it narrowly averted insolvency at the end of February, the capital
city has, to a certain extent, been under the yoke of the national
government and the mayor has been ordered to undertake draconian
austerity measures. This is the last remaining opportunity for turning
the city around, Renzi’s state secretary for the economy recently said.
Rome, he said, should become a shining example for the rest of Italy to
follow.

But where to begin? Upon their
arrival, the first thing some pilgrims to Rome will see is a
five-and-a-half-meter (18 foot) tall bronze statue of Pope John Paul II.
In what appears to have been wise foresight, the former leader of the
Catholic Church has his back turned to the station forecourt, which is
littered with drug addicts’ syringes and grocery store shopping carts
that homeless people have filled to the brim.

A
wiry, bald-headed man walks right through the turmoil on a recent
morning and says, “The first thing that needs to be done is for the city
to reconquer its public spaces. There is not a single street left in
the entire city where you have the feeling you’re in Europe — I mean,
where everything works as it should.”...

BRICS countries to set up their own IMF

The
BRICS countries (Brazil, Russia, India, China and South Africa) have
made significant progress in setting up structures that would serve as
an alternative to the International Monetary Fund and the World Bank,
which are dominated by the U.S. and the EU. A currency reserve pool, as a
replacement for the IMF, and a BRICS development bank, as a replacement
for the World Bank, will begin operating as soon as in 2015, Russian
Ambassador at Large Vadim Lukov has said.

Brazil
has already drafted a charter for the BRICS Development Bank, while
Russia is drawing up intergovernmental agreements on setting the bank
up, he added.

In addition, the BRICS
countries have already agreed on the amount of authorized capital for
the new institutions: $100 billion each. “Talks are under way on the
distribution of the initial capital of $50 billion between the partners
and on the location for the headquarters of the bank. Each of the BRICS
countries has expressed a considerable interest in having the
headquarters on its territory,” Lukov said.

It
is expected that contributions to the currency reserve pool will be as
follows: China, $41 billion; Brazil, India, and Russia, $18 billion
each; and South Africa, $5 billion. The amount of the contributions
reflects the size of the countries’ economies.

Russia to launch domestic alternative to Visa and Mastercard Russia to launch domestic alternative to Visa and Mastercard

By
way of comparison, the IMF reserves, which are set by the Special
Drawing Rights (SDR), currently stand at 238.4 billion euros, or $369.52
billion dollars. In terms of amounts, the BRICS currency reserve pool
is, of course, inferior to the IMF. However, $100 billion should be
quite sufficient for five countries, whereas the IMF comprises 188
countries — which may require financial assistance at any time.

The
BRICS countries are setting up a Development Bank as an alternative to
the World Bank in order to grant loans for projects that are beneficial
not for the U.S. or the EU, but for developing countries.

The
purpose of the bank is to primarily finance external rather than
internal projects. The founding countries believe that they are quite
capable of developing their own projects themselves. For instance,
Russia has a National Wealth Fund for this purpose.

“Loans
from the Development Bank will be aimed not so much at the BRICS
countries as for investment in infrastructure projects in other
countries, say, in Africa,” says Ilya Prilepsky, a member of the
Economic Expert Group. “For example, it would be in BRICS’ interest to
give a loan to an African country for a hydropower development program,
where BRICS countries could supply their equipment or act as the main
contractor.”

If the loan is provided by the IMF, the equipment will be supplied by western countries that control its operations.

The
creation of the BRICS Development Bank has a political significance
too, since it allows its member states to promote their interests
abroad. “It is a political move that can highlight the strengthening
positions of countries whose opinion is frequently ignored by their
developed American and European colleagues. The stronger this union and
its positions on the world arena are, the easier it will be for its
members to protect their own interests,” points out Natalya Samoilova,
head of research at the investment company Golden Hills-Kapital AM.

Having
said that, the creation of alternative associations by no means
indicates that the BRICS countries will necessarily quit the World Bank
or the IMF, at least not initially, says Ilya Prilepsky.

In
addition, the BRICS currency reserve pool is a form of insurance, a
cushion of sorts, in the event a BRICS country faces financial problems
or a budget deficit. In Soviet times it would have been called “a mutual
benefit society”, says Nikita Kulikov, deputy director of the
consulting company HEADS. Some countries in the pool will act as a
safety net for the other countries in the pool....

Suspicion grows that China is exporting deflation worldwide by driving down yuan

The
Chinese Yuan weakened yet again this morning, punching through the key
line of 6.25 against the dollar. It is almost back to where it was two
years ago. This is the biggest story in the global currency markets.

Yuan
devaluation has reached 3.1pc this year. The longer this goes on, the
harder it is to accept Beijing’s story that it is one-off measure to
teach speculators a lesson and curb hot money inflows.

The
US Treasury clearly suspects that the Chinese authorities have reverted
to their mercantilist tricks, driving down the exchange rate to keep
struggling exporters afloat. Officials briefed journalists in Washington
two weeks ago in very belligerent language.

The
Treasury’s currency report this month accused China of trying to
“impede” the market by boosting foreign reserves by $510bn last year to
$3.8 trillion — “excessive by any measure”.

It
gave a strong hint that China is disguising its reserve accumulation.
You don’t have to dig hard. Simon Derrick from BNY Mellon said a recent
buying spree of US Treasuries and agency debt by Belgium of all places
looks like a Chinese front.

Holdings by
entities in Belgium have jumped to $341bn from $169bn last August. This
would appear to explain how China’s FX reserves have kept rising to
$3.95 trillion even as its custody holdings in the US itself have been
falling. If so, China is playing dirty pool.

Hans
Redeker from Morgan Stanley says China seems to have adopted a “beggar
thy neighbour policy” to counter the slowdown at home and soak up excess
manufacturing capacity.

Albert
Edwards from Societe Generale said in a note today that China is
“sliding inexorably towards deflation”. Factory gate prices have been
falling for 25 months in a row.

The GDP
deflator — which proved a much better gauge of trouble at the onset of
Japan’s Lost Decade than consumer prices — has plummeted from 1.4pc to
0.4 over the last year.

This means that
China’s nominal GDP growth has dropped to just 7.4pc and is nearing the
levels of the post-Lehman trough. This is the indicator that matters for
the solvency of China’s heavily-indebted companies.

Mr
Edwards said the next shoe to drop in world the economy (leaving aside
the Donbass) is a systematic attempt by China to export its deflation to
any other sucker willing to accept it by driving down the yuan.

Those
countries that have failed to build adequate defences by keeping
inflation safely above 1pc could face a nasty shock when this happens.
The eurozone looks like the sucker of last resort. A Chinese
deflationary tide would push Southern Europe over the edge.

Perhaps that is why the ECB’s Mario Draghi sounded ever more alarmed today in his efforts to talk down the euro today.

I
take no view on how far China intends to go with this. It may reverse
course any time. I merely pass on SocGen’s view for readers to think
about.

Nor have I made up my mind whether
the yuan is correctly valued. Diana Choyleva from Lombard Street
Research says it is 15pc to 25pc overvalued as a result of surging wages
and poor productivity growth....

“When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”

– Sir Arthur Conan Doyle, The Sign of Four

“We all want to believe in impossible things, I suppose, to persuade ourselves that miracles can happen.”

– Paul Auster, The Book of Illusions

“He
possessed the logic of all good intentions and a knowledge of all the
tricks of his trade, and yet he never succeeded at anything, because he
believed too much in the impossible. Surprising? Why so? He was forever
in the act of conceiving it!”

– Charles Baudelaire

“She shook her head and whispered, “No. No! That can’t be true. Impossible!”

“You think things have to be possible? Things have to be true!”

– Philip Pullman, The Subtle Knife

This
week’s TTMYGH revolves around “Macs.” The first is a man-turned-verb
who was capable of extricating himself from seemingly hopeless
situations, armed with an array of tools seemingly singularly unsuited
to the purpose; and the second is an ingenious, though ultimately
futile, plot device which has been used by everyone from Welles to
Hitchcock to Tarantino.

Though
at first blush it’s hard to see a link between the two, in today’s
world there are Angus MacGyvers everywhere, beetling away with duct tape
and Swiss army knives, trying to extricate themselves from completely
hopeless situations; and if they are to succeed before the credits roll,
they must rely upon one very important thing: the suspension of
disbelief by their audience.

That’s where the other “Mac” comes in.

Man first.

Angus
MacGyver was a troubleshooter. He worked for the fictional Phoenix
Foundation as a secret agent and also for the US government in the (also
fictional) Department of External Services.

Educated
as a scientist and possessing an encyclopedic knowledge of the physical
sciences, MacGyver had been a bomb disposal technician during the
Vietnam War and possessed a distinctly pacifist outlook on life — he
hated guns.

Also, his luck could scarcely be described as merely “good.”

Somehow,
over the course of seven seasons, MacGyver managed to get himself into
some 139 impossible-to-get-out-of situations — each of which he managed
to navigate successfully by using conventional items in a distinctly
unconventional way.

By way of illustration, in the pilot episode alone, MacGyver managed to do the following:

•Rig
a machine gun with a cord, string, stick, and matches so that when the
string burned through, the machine gun fell and was triggered by the
stick and began firing (while still being held by the cord).

•Plug
a sulfuric acid leak with chocolate. MacGyver stated that chocolate
contains sucrose and glucose. The acid reacted with the sugars to form
elemental carbon and a thick gummy residue. (NB this was subsequently
proven to work, as demonstrated on the show Mythbusters.)

•Make
a “rocket thruster” by hitting a flare gun with a rock, launching
MacGyver and a man he rescued off of a mountain, whereupon he opened a
parachute and made a clean getaway.

•Create
a bomb to open a door using a gelatin cold capsule containing sodium
metal, which he placed in a glass jar filled with water. When the
gelatin dissolved, the sodium reacted violently with the water and
caused an explosion which blew a hole in the wall.

Impressive
stuff. It’s no wonder he ended up becoming a verb. But to witness
perhaps his greatest-ever escape, afford yourself two minutes to watch THIS little stunt to see how MacGyver escaped from his own coffin.

I
couldn’t help but think of MacGyver this past week as I sat chatting
with a colleague about the situation Japan now finds itself in.

I
won’t recap the details of the straitjacket into which the Japanese
have been strapped for the past two decades — enough ink has been
spilled on that subject already, including in a recent Things That Make
You Go Hmmm... entitled “Avenomics”
— but my conversation this week stemmed from the following statement,
made by me to myself, as I leaned back in my chair after reading an
article about proposed changes to the GPIF (Government Pension
Investment Fund), Japan’s public pension fund:

“Japan really is totally f*****.”

What led me to that well-thought-out and eruditely expressed conclusion? Read on.

In
case you are not familiar with the GPIF, it is the largest pool of
government-controlled investment capital on the planet — outstripping
even the infamous Arab sovereign wealth funds.

The
GPIF controls ¥128.6 trillion, or $1.25 trillion, and to say the
organization is somewhat risk-averse is akin to calling the Kardashian
family somewhat shameless.

The GPIF holds
almost 70% of its assets in bonds — and the vast majority of them are of
the local variety. The reason for this? Well that would be because the
GPIF is (and has always been) run by bureaucrats from the Ministry of
Health, Labour & Welfare, as opposed to, say, investment
professionals.

But that’s probably no bad
thing, because no investment professional worth his salt would have
bought so many JGBs; so if GPIF didn’t buy them, THAT would be a big
problem for the Japanese government AND the BoJ.

Source: GPIF

How did that allocation to domestic bonds do last year? Well, as it turns out, not so great:

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Total 2013

Domestic Bonds

-1.48

1.18

0.18

-

-0.14

Domestic Stocks

9.70

6.07

9.19

-

27.05

Int’l Bonds

4.01

1.64

8.16

-

14.34

Int’l Stocks

6.14

7.13

16.23

-

32.17

Source: GPIF

Fortunately, over the last twelve years the GPIF has managed to meet its targets — by growing at an annualized rate of 1.54%.

Thankfully
for the GPIF, despite their largest allocation throwing off negative
returns, the BoJ’s actions in weakening the yen boosted the Nikkei, and
the central-bank-inspired strength in equities and bonds elsewhere in
the world helped GPIF’s performance to pass the smell test for 2013.

Now,
when it comes to bureaucracy, Japan is in a league all of its own. My
first up-close experience of this came in 1989 when I went to get a
driver’s license after moving to Tokyo. Anybody who has attempted to
complete that fairly straightforward objective in Japan knows that it
requires the best part of a day traipsing upstairs and down between
several counters, getting the same piece of paper stamped by numerous
people in a very specific order. Several visits are required to the same
person — but only in the correct order.

Maybe this process has changed 25 years on, maybe it hasn’t. I’m willing to bet on the latter.

Anyway,
amongst themselves, foreigners in Japan have a saying which strikes at
the very heart of this little bureaucratic problem:

“Everything makes sense once you realize Japan is a communist country.”

Aki Wakabayashi’s book Komuin no Ijona Sekai (The Bizarre World Of The Public Servant)
sprang from her 10 years working at a Labour Ministry research
institute and lifted the lid on some of the peccadilloes of Japan’s
civil service.

Wakabayashi
told of being scolded for saving her department ¥200 million, as her
effort put that amount in jeopardy for the following year’s budget
allocation; of senior managers taking female subordinates on
first-class, round-the-world trips to “study labour conditions in other
countries”; and of the mad dash by all departments to spend unused
budget before year-end — the collective result of which saw monthly
total expenditures by government agencies jump from ¥3 trillion in
February to ¥18 trillion in March.

The facts unearthed by Wakabayashi are remarkable:

(Japan
Times): The national average annual income of a local government
employee was ¥7 million in 2006, compared to the ¥4.35 million national
average for all company employees and the ¥6.16 million averaged by
workers at large companies. Their generosity to even their lowest-level
employees may explain why so many local governments are effectively
insolvent: Drivers for the Kobe municipal bus system are paid an average
of almost ¥9 million (taxi drivers, by comparison, earn about ¥3.9
million).

School
crossing guards in Tokyo’s Nerima Ward earned ¥8 million in 2006. (Such
generosity to comparatively low-skilled workers may explain why in the
summer of 2007 it was discovered that almost 1,000 Osaka city government
employees had lied about having college, i.e., they had, but did not
put it on their resumes because it might have disqualified them from
such jobs!) Furthermore, unlike private sector companies, public
employees get their bonuses whether the economy is good or bad or, in
the case of the Social Insurance Agency, even after they lose the
pension records of 50 million people (2008 year-end bonuses for most
public employees were about the same as 2007, global economic crisis
notwithstanding).

In
addition to their generous salary and bonuses, public servants get a
wealth of extra allowances and benefits. Mothers working for the
government can take up to three years’ maternity leave (compared to up
to one year in the private sector, if you are lucky). Some government
workers may also get bonuses when their children reach the age of
majority, extra pay for staying single or not getting promoted, or
“travel” allowances just for going across town. Perhaps the most
shocking example Wakabayashi offers is the extra pay given to the
workers at Hello Work (Japan’s unemployment agency) to compensate them
for the stress of dealing with the unemployed.

Japan’s
bureaucracy is extreme but hardly unique, so I won’t dwell on its
absurdities; but these examples at least give us some background for
understanding the GPIF.

The decision-making
chart of the organization is a masterclass in Japanese process. Where
else would you have specific departments responsible for “demands for
improvements” and “deliberations”?

Source: GPIF

Back
in November 2013, a seven-member panel led by a Tokyo University
professor Takatoshi Ito and convened by PM Shinzo Abe published its
final recommendations for the future of the GPIF, and those findings set
the behemoth on a course into far more turbulent waters:

(Pensions
& Investments): The panel’s Nov. 20 final report said the GPIF’s
60% allocation to ultra-low-yielding Japanese government bonds —
defensible in the deflationary environment of the past decade — should
not be maintained in the inflationary one Mr. Abe has promised as a
centerpiece of his quest to revive Japan’s economy.

The
seven-member panel ... urged the GPIF and other big public funds in
Japan to diversify into real estate investment trusts, real estate,
infrastructure, venture capital, private equity and commodities, while
shifting more assets to active strategies from passive and adopting a
more dynamic approach to asset allocation.

Governance
of those public funds, with combined assets of roughly $2 trillion,
should be strengthened by making them more independent of the ministries
that oversee them.

Now, it’s
extremely hard to fault the logic underpinning the recommendations made
by Ito’s panel — though naturally, with this being Japan...

Some observers — noting that previous calls for reform had come to naught — urged caution.

The
recommendations make sense, but the challenges of revamping investments
at a fund controlling such a large chunk of Japanese retirement savings
will be considerable, warned Alex Sato, president and CEO of
Tokyo-based Invesco (IVZ) Asset Management (Japan) Ltd.

To
put the size of the GPIF into perspective, should the decision be made
to allocate a mere 5% of its assets to a particular asset class, that
would require the deployment of $60 billion.

The redeployment of those holdings of JGBs is likely to cause future problems, but that
didn’t concern one of the GPIF panel members, Masaaki Kanno, an
economist at JP Morgan in Tokyo, who, after the findings were published,
made a couple of predictions:

(P&I):
In a Nov. 20 research note, Mr. Kanno predicted the GPIF would be
permitted enough flexibility to allow allocations to yen bonds to drop
to 50% by the summer of 2014.

The
Bank of Japan’s recent policy initiative to flood the market with
liquidity, meanwhile, could set the stage for a seamless transfer of
that huge amount of Japanese government bonds, Mr. Kanno said.

Eventually,
Japanese government bonds should drop to between 30% and 40% of the
GPIF’s portfolio — higher than the 20% to 30% range typical of leading
public pension funds abroad to account for Japan’s rapidly aging
demographic profile, Mr. Kanno said. Meanwhile, another ¥30 trillion
($300 billion), or a quarter of the fund’s assets, should eventually
shift into “risk assets,” according to the J.P. Morgan report.

The
BoJ certainly does have a policy initiative to “flood the market with
liquidity,” but that policy initiative is the continuation and expansion
of a policy that has been in operation for 20+ years — namely, the
purchasing of the government’s own debt with freshly printed yen.

In 2001 the Japanese termed it ryōteki kin’yū kanwa, but today everybody knows it as quantitative easing.

In
a paper which analyzed Japan’s initial experimentation with QE,
published in February 2001, Hiroshi Fujiki, Kunio Okina, and Shigenori
Shiratsuka (all three senior BoJ economists) suggested that once a zero
interest rate had been reached, if the situation still appeared dire,
MacGyvering an alternate solution might not be the greatest idea in the
world:

(Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists):
[F]urther monetary easing beyond the zero interest rate policy, most
typified by the outright purchase of long-term government bonds, should
be viewed as a bet which we would only be forced to explore in the event
the Japanese economy stands on the brink of serious deflation.
Considering the uncertainty and risks surrounding these unconventional
measures, it is quite inappropriate to introduce them merely on an
experimental basis. Of course, this does not mean that further monetary
easing may not be warranted in any circumstances, nor that other easing
measures not covered in this paper are infeasible...

What the hell did those guys know, anyway?

Indeed. As if looking into some sort of crystal ball, Messrs. Fujiki, Okina, and Shiratsuka continued:

With
regard to monetary policy in Japan, there seems to be some
oversimplified idea that the adoption of inflation targeting would be a
panacea for current economic difficulties. This should remind central
bankers, who must make policy decisions on a real-time basis amid
drastic structural transformation, of the unfruitful traditional “rule
versus discretion” debate in terms of monetary policy implementation.

The
subsequent expansion of the BoJ’s QE policy can be seen clearly in the
chart on the previous page. It highlights beautifully the problem with
heading down the treacherous QE trail: ever-increasing amounts of money
must be printed to keep the wheels turning.

Once you start, to stop is not a decision that is made by you, but rather it eventually gets made for
you. In the meantime, your balance sheet just swells and swells. The
BoJ’s has increased almost five-fold since 1997 and is up 80% since the
beginning of 2012:

... and, if you’re Japan, your monetary base goes vertical:

That’s three very similar charts, but the next one looks nothing like the preceding ones:

And therein, as The Bard (who celebrated his 450th birthday this week) almost once said, lies the rub.

Japan’s
population is actually declining — fast. And under the crush of that
breaking statistical wave, everything gets harder for Japan.

Japan’s
population “pyramid” looks more like a top-heavy baking dish. There are
already more over-65s than under-24s; but it is estimated that by 2060
Japan’s population will have fallen from 128 million to 87 million, and
roughly half of those remaining will be over 65.

The
ONLY answer for Japan is immigration — lots of it — but that, I am
afraid, is a total non-starter for the insular Japanese. The
depopulation problem already loomed on the horizon like a distant oil
tanker in 1989 when I lived in Tokyo. What has changed since then is
that the tanker has now docked.

In 2003, it
was estimated by the UN that Japan would need 17 million new immigrants
by 2050 to avert a collapse of the very pension system we’re examining
this week. Those immigrants would amount to 18% of the population in a
country where immigrants currently amount to...wait for it... 1%.

It gets worse.

Of
that 1%, most are second- or third-generation Koreans and Chinese,
descendants of people brought to Japan from former colonies.

As
of October 1, 2013, there were all of 1.59 million foreigners in Japan,
and that is after net immigration ROSE for the first time in 5 years,
with 37,000 new immigrants taking a bit of the sting out of the 253,000
decrease in Japanese citizens in 2013.

So...
Japan’s fate is set. In coming years the ageing population will be
drawing down its pension funds at an ever-increasing pace, even as the
largest pension fund in the world is being forced by the government into
allocating more of those funds to riskier assets in order to try to
stimulate growth in the moribund economy.

Meanwhile,
the Bank of Japan is embarking on an experiment in monetary
prestidigitation the likes of which has never before been seen; and in
order for it to be successful they will need the GPIF to not only not SELL JGBs but to BUY MORE of them.

In
addition, Shinzo Abe is promising the Japanese (and every holder of
JGBs, which are yielding a paltry handful of basis points) that he will
generate 2% inflation, thus rendering their JGB holdings completely
useless.

The whole thing is madness — madness built on the promise of the delivery of a dream.

Already
the BoJ is buying up to 85% of some JGB issuances, and an estimated 91%
of Japanese bonds are held domestically. What do you think happens when
the GPIF turns from buyer to seller?

Uh-huh. The BoJ will have its work cut out to maintain order.

How tenuous is the BoJ’s grip on their bond market?

Well,
last month the BoJ announced that it would be buying “just” ¥170 bn of
long-term bonds instead of the ¥180 bn the market expected. The result?

(FT):
Traders’ explanations for a sudden surge in yields at about 10:15 am in
Tokyo ranged from a “fat finger” trade in JGB futures — which saw
prices for June delivery drop one whole point from 144.80 to 143.80 — to
a simple sell-off exacerbated by algorithmic trading.

But
there was no doubt about the trigger: a 10:10 am announcement from the
central bank that it was looking to buy Y170bn of long-term bonds,
rather than the Y180bn the market had expected.

“I
think the BoJ has induced some form of unwarranted volatility, which is
not being taken kindly by the market,” said Shogo Fujita, chief Japan
bond strategist at Bank of America Merrill Lynch in Tokyo. “With rates
near zero the only thing the BoJ can do is to contain volatility, and
today they’re doing a very poor job.”

Mark my words, this is going to end VERY badly. Very badly indeed.

PAGING MR. KYLE BASS! MR. BASS TO THE FRONT DESK, PLEASE:

(Beacon Reports): KYLE BASS:
That plan, one of the three arrows in Abe’s growth strategy (called
‘Abenomics’), has the BOJ buying just over ¥60 trillion of new bonds
each year for the next two years. It effectively doubles Japan’s
monetary base. Considering the likely fiscal deficit for this year and
next is running about ¥50 trillion each year, or close to 11% of GDP, I
think the BOJ can only buy another 10 or ¥12 trillion of JGBs. I don’t
think that cushion is going to be enough to monetize the entire fiscal
deficit if they are going to be the buyer of last resort.

The
key question is, will the BOJ be able to hang on to rates? I think they
can in the near-term and I think they can’t in the medium to long-term.
If investors holding JGBs actually believe that ‘Abenomics’ will work,
then it creates a problem — the ‘Rational Investor Paradox’ — where
investors rationally sell some of their JGBs because they are being told
to expect negative real rates of return if the administration achieves
its 2% CPI target.

Whether
that means they sell some or all of them is up to the individual
sellers. One bank sold more than 20% of its JGB ownership in the first
quarter. If 5% of owners sell, that’s another ¥50 trillion. The reason
you’re seeing so much bond market volatility, even though the BOJ is
actively trying to keep a lid on rates, is that the BOJ is being
overwhelmed by selling despite its large purchase program.

Bravo, Kyle.

Kyle
brings up the topic of Abenomics and Abe’s fabled “three arrows,” which
supposedly, once fired, would magically fix all Japan’s woes.

The
first arrow, massive monetary easing, has been launched; and, depending
on how you measure these things, it has either been a magnificent
success or has put the final nail in Japan’s coffin. Optically, it has
done what was intended (weaken the yen, pump up the Nikkei, and pull JGB
yields even lower), so the Japanese government is counting that one in
the win column. Me? I think, once hindsight can take a look at Japan
properly, Abe’s QE will be seen as an arrow shot right through the
faintly beating heart of the country, finally killing it. But we’ll have
to wait and see.

The second arrow is the
targeted ¥10.3 trillion ($116 billion) of fiscal support that includes
investment in ageing infrastructure and tax breaks to encourage R&D,
the hiring of new employees, the raising of wages, and the buying of
capital equipment. That arrow too has been fired, and the jury is once
again decidedly out on whether any long-term success will result.

That leaves Abe’s third arrow.

Before we get to that one, a little story of how the policy got its name.

In 16th-century Japan, according to legend, a daimyo
(feudal lord) named Motonari Mōri told each of his three sons to break
an arrow in half. Each of them duly did as their father bade them. Mōri
then told his sons to tie three arrows together in a bundle and try to
break all three at once.

None of them were successful.

Do
you see what Abe and his advisors were doing here? Isn’t it brilliant?
Such a wonderful allegory. Who wouldn’t buy into that idea? Well, the
Japanese certainly did (up to a point); and foreign investors,
guaranteed a sinking yen and a rising Nikkei, also came to the party —
though one can’t help but think they have a taxi waiting outside and
won’t be sticking around for the slow dancing.

But there’s still that damned third arrow.

That
is the one that involves real, structural change; and I’m sorry to have
to be the one to mention it, but the Japanese don’t do real structural change.

This brings me to our other “Mac” for today.

Abe’s
third arrow is little more than an ingenious device designed to keep
the watching world focused on something that will ultimately prove
irrelevant to the plot.

(Wikipedia):
[A] MacGuffin is a plot device in the form of some goal, desired
object, or other motivator that the protagonist pursues, often with
little or no narrative explanation. The specific nature of a MacGuffin
is typically unimportant to the overall plot. The most common type of
MacGuffin is an object, place or person; other types include money,
victory, glory, survival, power, love, or other things unexplained.

The
MacGuffin technique is common in films, especially thrillers. Usually
the MacGuffin is the central focus of the film in the first act, and
thereafter declines in importance. It may re-appear at the climax of the
story, but sometimes is actually forgotten by the end of the story.

Sound familiar?

Think of Abe’s third arrow as Citizen Kane’s sled or Pulp Fiction’s briefcase — a plot point that initially assumes tremendous importance but fades into irrelevance by the end of the movie.

Abe
has done a masterful job at getting the world to buy into his reform
program, but the world was only too ready to do so after two decades of
false dawns in Japan.

The Japanese public
were ready for their country to cast off the shackles of deflation
(although, to a population ageing as fast as the Japanese are, a little
deflation is a wonderful thing), and investors around the world were
happy to believe that this was finally going to be the time when buying
the Nikkei would lead to outperformance (providing your currency was
hedged, of course). FX traders just wanted a central bank-backed trade
to put on.

But as with all central
bank-inspired moves, the reality here is not all about reform and
structural change, but rather about a group of investors simply
front-running the BoJ’s largesse.

The
investment community will play ball until the moment juuuuuuust before
the crashing realization dawns that Abe can’t fire his third arrow — and
then they’ll say thank you for the free ride and exit stage left.

Preliminary
committee findings which suggested that radical overhaul of Japanese
employment law, healthcare, and agricultural policy be part of the third
arrow were watered down, and a vague compromise was wafted in front of
the world — with the promise of so much more to follow.

In an interview with CNN’s Fareed Zakaria earlier this year, Abe explained the true significance of the third arrow:

“What
is important about the third arrow, structural reform, is to convince
those who resist the steps I am taking and to make them realize that
what I have been doing is correct, and by so doing, to engage in
structural reform.”

Read that again.

Yes
folks, the important part of structural reform in Japan is to convince
people that Abe is correct. If he can convince them he is right, they
will have engaged in structural reform.

Confused?

You should be.

This is how Japan works — or doesn’t.

Immigration reform has been widely recognized as the only answer to Japan’s crippling demographic problem for well over three decades. Nothing has been done about it.

How
about the “Wage Surprise” — increasing wages on a national basis —
hailed by Abe as the key to lifting Japan out of the doldrums, and a key
feature of Abenomics?

(Bloomberg,
March 4, 2014): Japan’s salaries increased for the first time in almost
two years in January as companies boosted pay for part-timers, aiding
Prime Minister Shinzo Abe’s effort to end 15 years of deflation.

Base
pay excluding bonuses and overtime rose 0.1 percent from a year
earlier, the first gain in 22 months, the labor ministry said in Tokyo
today.

Yep, a 0.1% increase in base pay. However...

Overall pay fell 0.2 percent, the first drop in three months.

Doh!

Subsequently,
Japan’s wages have seen modest increases, with base pay increases
hitting 16-year highs. “Good,” I hear you cry. Well yes, only, that
16-year high equates to a 2.39% rise — not QUITE enough to make up for
the 3% consumption tax increase which kicked in on April 1.

If Keynesian loon former BoE policymaker Adam Posen is to have his way, those wages had better start spiraling up fast:

(WSJ):
The goal of Abenomics, Mr. Posen said, is not to make Japan richer or
improve its fiscal position. Rather, it’s to establish a strong base
from which Japan can help remake the Asian order in coming years — “a
nice way of saying” that the ultimate purpose is to enable “Japan and
its neighbors not to be dominated by China.”

There’s
a window of about a decade to remake Japan’s economy toward that goal,
Mr. Posen said, but over that time it needs to average economic growth
of about 1.75% a year and raise its consumption tax to 20%.

Markets
will eventually tire of Abe’s continual promises that more is coming,
so he desperately needs to somehow break the entrenched deflationary
attitude in Japan.

(WSJ):
In a survey of 1,000 consumers on March 29-30 by broadcaster Fuji News
Network, 69% said they had not made any special purchases ahead of the
sales tax rise, and 77.4% said they didn’t feel an economic recovery was
under way.

Good luck with that attitude problem, Shinzo.

This week we got a look at how Abe is faring with one of his promises, that of guaranteed 2% inflation.

Core CPI (excluding food and energy) rose 1.3% in March — unchanged from the previous month and lower than analyst forecasts.

Of course, that was taken as a sign that further easing by the BoJ would be forthcoming...

And round and round it goes... until it stops.

The briefcase in Pulp Fiction ONLY works because we DON’T find out what is in it.

Abe’s
third arrow can be loaded into the bow, but it can’t be fired once and
for all, because if it IS fired, the game is up. There will still be
continual promises of more to come, and markets may buy into that for a
while; but, like all central bank-induced “boom times,” Abenomics has a
shelf life, and that is nearing an end.

The
changes at the GPIF are potentially disastrous, and Kuroda’s BoJ and
Abe’s government are desperately trying to MacGyver their way out of an
impossible situation, armed only with hollow promises and faith, when
what they really need is duct tape and a Swiss army knife.

When
asked by François Truffaut in a 1966 interview how he would describe a
MacGuffin, Alfred Hitchcock illustrated it perfectly with this story:

It
might be a Scottish name, taken from a story about two men on a train.
One man says, “What’s that package up there in the baggage rack?” And
the other answers, “Oh, that’s a MacGuffin”. The first one asks, “What’s
a MacGuffin?” “Well,” the other man says, “it’s an apparatus for
trapping lions in the Scottish Highlands.” The first man says, “But
there are no lions in the Scottish Highlands,” and the other one
answers, “Well then, that’s no MacGuffin!” So you see that a MacGuffin
is actually nothing at all.

Abenomics
is a plan by which to change Japanese behaviour; but as anyone who has
spent any time in that wonderful, perplexing country will tell you, the
Japanese do NOT change their behaviour — even when facing a demographic
disaster.

Sorry, but Abenomics is actually nothing at all.

*******

Right then, after that little lot, it’s time to get to the rest of this week’s Things That Make You Go Hmmm...,
and we kick things off with suspicions surrounding a Chinese export of a
slightly different kind than those we are used to. From there we head
to Rome to find a mighty city in decay; to the US, where an astonishing
one in ten bridges is in need of repair; and to France to read about the
man of the moment, Thomas Piketty.

The
BRICS are on the verge of making a big move of their own; and heading
back to China, we ask the question “What if China has a Fukushima?” and
find a property market swiftly falling to earth.

The article that kicked off this week’s TTMYGH can be found on page 26, and I’ve thrown in an irresistible story from The Onion for good measure. See if you can guess which one it is.

Charts?
Well, food inflation, crop and water stress, and Chinese gold
consumption take care of those, which leaves only the interviews; and
this week we have a couple of crackers, beginning with my friend Bill
Kaye from Hong Kong.

After Bill we get to
hear from the brilliant Pippa Malmgren, and there’s even room for yours
truly to squeeze his ugly mug in at the bottom of the page.